Spaces and Uses

Splitting your property into leasable areas

The business of leasing real estate operates by having a property owner (Landlord) lease their property or part of their property to a tenant. To model these transactions, the total property must be divided into leasable areas or spaces. These spaces should represent the structural use of the property. These could be by unit, floor, building, lot, etc.

Revenue generating uses can be populated into the space once they have been defined.

Screenshot showing the property spaces and uses input — Screenshot of the property spaces and uses input

Defining a space

Define each space by adding them to the model. The total gross leasable area at the bottom of the page will be the aggregate of all leasable spaces. The gross leasable area is used in occupancy calculations and the proration of expenses.

Very rough, approximate calculations can be performed using a single large space and a single tenant populated by the leasing rules.

After adding a space, define it attributes by completing each of the fields.

Space name

The name as it will appear for selection in the model and reports. The name should be short, descriptive and unique, ideally matching the name of the space as it appears in reality.

For example, "100," "Suite 100," "Floor 100" or "Building 3A."

Leasable area

The size of the space in the area unit of the model. All uses will be the size of the space unless manually overridden.

This value must be accurate for expenses, capital expenditures and other revenues to be correctly calculated and for recoverable amounts to be allocated.

Availability scope

The period of time the space is available and exists in its current form. Restricting the scope is used to describe physical changes to the property, such as adding an addition or merging and dividing spaces.

The gross leasable area at any given point in time is calculated as the sum of all leasable areas with available scope.

Always Available (None): The space exists for the entire duration the property is owned.
Until Date (end): The space is available from property acquisition until the specified date. Any use exceeding this date will automatically be cut short during calculations.
After Date (start): The space is available as of the specified date until the property disposal. A forecasting rule's time to lease begins on this date.
Date Range (start) (end): The space is available during the specified date range. A forecasting rule's time to lease begins on this date. Any lease ending outside the period will automatically be cut short during calculations.

Leasing rule

Determines the market rent rate and how leases are forecast. A leasing rule is strongly recommended on all spaces for the most complete reporting data, even when the space is used for non-traditional lease types.

When a lease rule is selected, adding a use to the space will copy the lease parameters automatically to speed entry since they should reflect the going market rate

Leases will not be forecast when a leasing rule is not selected. The market rate will be the same as the occupied use rate and go to zero when the space becomes unoccupied.

Adding usages

Usages are added to spaces to represent each of the uses over a known period of time. These are either contracted or speculated depending on if the legal agreement has been signed. The type of each usage should reflect how the revenue will be received. The input fields representing the typical options in the legal agreement will be shown once the type has been selected.

The types of supported uses are:

Traditional Lease: Commercial leases typical in the office and industrial subsector.
Retail Lease: Similar to commercial leases with the addition of percentage rent paid on a percentage of the tenant's sales.
Vacant Period: A known period when the space is unavailable for use. The space is still included in all calculations impacted by the gross leasable area such as occupancy and recovery allocation but will prevent leases from being forecast into the space. The leasing rule's forecasted time to lease will begin from the date the space becomes available.

Traditional Leases

Identification

Fields that identify the leaseholder and the contract status.

Tenant name

The name of the tenant as it appears on the lease agreement. Reports aggregated by usage and tenant specific reports will show these names.

Source

The source of the lease agreement that is shown in reports. This is important for lenders, so they can understand what revenues have been contracted and what revenues are being speculated. Additionally, a source of Forecasted may be seen in reports signifying a lease was forcast via the space's associated leasing rule.

Contracted: A lease has been signed. The details entered match the exact terms of the lease agreement.
Speculated: A lease has not been signed, but is expected to be soon. All lease details are known with a relatively high level of certainty.
Forecasted: A lease added by from the space's leasing rule by the forecasting engine when the model is executed. This is not selectable but will likely appear in reports.

Lease timing

The leasing timing fields controls the duration of a lease and what occurs once it concludes.

Use start

The inclusive date the use begins. If the use is defined by an agreement, it should be entered as it appears on the agreement, regardless of the model's analysis period.

Use end

The inclusive date the use ends. If the use is defined by an agreement, it should be entered as it appears on the agreement, regardless of the model's analysis period. A lease renewal should be entered as a new lease to signify both the renewal and to allow the terms to be updated.

Upon expiry

Defines what is expected to happen when the lease terminates. If this is the final usage, the forecasting engine will use this value to decide if a new lease should be forecast, renewed or do nothing when remain vacant is chosen.

Market

The tenant will not be renewing their lease. A replacement lease will be forecast using the space's associated leasing rule parameters after the time to lease has elapsed.

Renew

The tenant will have some likelihood of renewing their lease. The likelihood of renewal must be entered as the percentage chance they will sign a new lease. 100% signifies that a renewal is guaranteed. The lease renewal will have its duration prorated by the likelihood percentage, and its parameters prorated to the space's leasing rule's parameters.

Likelihood: The percentage chance the tenant will renew their current lease.

Remain Vacant

The tenant will not be renewing their lease. No lease will be forecast when the lease ends. This option might be chosen if the property owner intends to repurpose the space or combine the space with another.

Renewal duration

The renewal duration is required when the lease is set to renew and defines the length of the new term. The model will prorate the lease duration and parameters by the likelihood of renewal when performing a traditional analysis.

Years / Months: The duration in monthr or years as a decimal. A non-integer value will cause the decimal component to be prorated using the Actual/Actual day-count convention.
Weeks / Days: The duration in weeks or days as an integer.
Until: The lease will renew until the specified inclusive date.

Base Rent

Base rent is the rent amount explicitly specified in the lease.

Fixed base rent

The minimum amount of rent that a tenant is required to pay, excluding any additional rent such as operating expenses recoveries or percentage rent.

Base rents are often quoted as rates but can be entered as an amount per payment.

Amount per Year / Amount per Month: A fixed amount expressed as a monthly or yearly rate.
Amount per Area per Year / Amount per Area per Month: The yearly or monthly rate per unit of the leased area.
Percentage of Market: An amount expressed as a percentage of the market rent at the time the lease starts as defined by the selected leasing rule.

Step base rent

Step rent increases are an optional type of rent agreed upon in advance and written into the lease agreement. They are a lease structure where the base rent increases by predetermined amounts at specified intervals throughout the term.

Amount per Year: The base rent increases by a fixed amount each year on the anniversary of the lease start.
Amount per Area per Year: The base rent increases by a fixed amount per area each year on the anniversary of the lease start.
Percentage of Base per Year: The base rent increases by a percentage of the base rent amount each year on the anniversary of the lease start. These increases compound.

Concessions

Concessions are financial incentives or benefits offered by a property owner to a tenant to encourage them to sign or renew a lease.

Free rent period

A pre-agreed period of time when the tenant can occupy the space but does not have to pay rent. This is a common incentive for a tenant to sign a long-term lease. The tenant may or may not be responsible for their share of the property's expenses during this period. This is signified by a checkbox below the period input.

Occasionally, free rent may not refer to a period of free rent but instead as an ongoing financial adjustment. In these cases, the free rent deal terms should be input as a concession.

Free rent period options:

Years / Months: The duration in months or years as a decimal. A non-integer value will cause the decimal component to be prorated using the Actual/Actual day-count convention.
Weeks / Days: The duration in weeks or days as an integer.
Until: The lease will renew until the specified inclusive date.

Additional rent

Additional Rent encompasses most of the remaining rental income and recoveries specified in a lease agreement that are not part of the fixed Base Rent.

Expense recovery

Commercial lease agreements are often structured so property owners can recover a prorated share of operating expenses (and sometimes capital expenditures) from each of their tenants.

Expense recovery options:

None (Gross): No costs are recovered from the tenant.
Full (Net): The property owner collects all recoverable costs from the tenant. Commonly found in long-term lease agreements.
Expense Stop (Year): The property owner is responsible for all expenses up to the stop amount. Calculated as the recoverable amounts in the selected year of the lease, most commonly the first year (year 0). Any exceeding amounts become the responsibility of the tenant.
Expense Stop (Amount): The property owner is responsible for all expenses up to the stop amount. Any exceeding amounts become the responsibility of the tenant.
Expense Stop (Amount per Area): Similar to expense stop amount but measured on an area bases.
Fixed (Amount): The property owner recovers up to a fixed amount from the tenant per year. All costs exceeding this amount are the responsibility of the property owner.
Fixed (Amount per Year): Similar to fixed amount but measured on an area basis.

Leasing Costs

All expenses associated with securing a lease. Leasing costs are not considered an operating expense and will not appear in the operating activity statement.

Leasing commissions

Fees paid to real estate brokers or agents for successfully arranging a lease agreement between the property owner and tenant.

Amount: A fixed amount regardless of the revenues received.
Amount per Area: The product of the supplied amount and the area being leased.
Amount per Area per Year: The product of the supplied amount, leased area and duration of the lease in years.
Percentage of Total Lease Value: A percentage of the total base rent paid over the entire duration of the lease.

Tenant improvement allowance

Also known as TI contribution, is the financial offering by the property owner towards the tenant's costs to customize or renovate the leased space to fit the tenant's specific needs.

Amount: A fixed amount contributed to improvements.
Amount per Area: The product of the supplied amount and the area being leased.
Amount per Area per Year: The product of the supplied amount, leased area and duration of the lease in years.

Incentives

Any other financial contribution from the property owner to the tenant to encourage them to sign a lease. Examples include moving cost allowances or a contribution towards nearby parking or conference room access that is not owned by the property owner.

Amount: A fixed amount paid to the tenant.
Amount per Area: The product of the supplied amount and the area being leased.
Amount per Area per Year: The product of the supplied amount, leased area and duration of the lease in years.

Payment frequency

The frequency that rent is paid from the occupant to the property owner.

Yearly / Semiyearly / Quarterly: The payments will be aligned to the selected month and day of month.
Every Two Months / Monthly: The payments will be aligned to the selected day of the month.
Semimonthly: The payments will recur on the two dates of the month. Both payments will be equal amounts regardless of the span between them (ex. 1st and 15th in a month with 31 days.)
Every Two Weeks / Weekly: The payments will be aligned to the selected day of the week. Amounts entered as rates will be prorated using the Actual/Actual day-count convention. This means that a yearly rate will produce differing payment amounts when weekly frequency is selected and the number of weeks in the year is either 52 or 53. If this does not reflect the agreement, it is recommended that amounts paid weekly or every two weeks are entered as amount per recurrence.

Vacant Period

A known period when the space is unavailable for use. The space is still included in all calculations impacted by the gross leasable area such as occupancy and recovery allocation but will prevent leases from being forecast into the space. The leasing rule's forecasted time to lease will begin from the date the space becomes available.

Period start

The inclusive date the vacant period begins. Enter when it starts regardless of the model's analysis period.

Period end

The inclusive date the vacant period ends. Enter when is ends regardless of model's analysis period.